Managing risks and controlling costs, it’s a question of culture.

Risk, according to one dictionary definition, is

“The possibility of suffering harm or loss”.

Failing to manage risk hits the bottom line; contrary to widely held opinion there is no conflict between managing safety and quality and maintaining profitability. Relying on regulation, supervision and box ticking is extremely expensive and is not wholly effective; it is the decisions that people take “at the coal face” that affect results, and corporate culture and management behaviours influence those decisions. As Aristotle succinctly observed in 300BC,

“We are what we repeatedly do. Excellence, then, is not an act, but a habit”

How to link Reward to your Business Goals

A new benefits strategy can revolutionise the way that your employees are managed, encouraged and incentivised. Yet many companies fail to recognise that if you get your Reward System right then Employees become much more focused on their own performance. If staff know what they need to do to achieve business goals and, crucially, how they can improve their own package by being more productive – you’ve cracked it.

The constant change that surrounds most industry sectors these days requires that you regularly review your business goals and it makes sense to review the Reward Systems at the same time. I can’t go into all the ins and outs of the process in this short blog (you will have to hire me for that) but I will give you a few things to consider

How to implement your strategy....

By Stuart Ross - High Growth

After completing a strategy process, a lot of managing directors I work with are tempted to breathe a sigh of relief. However, if you think going through the process of discussing strategy and creating a plan means it will magically be implemented, think again. Only 10% of companies implement their strategy successfully.

A few years ago, Fortune Magazine published a surprising statistic that stated only 10% of employees understand their company’s strategy. If employees don’t understand their company’s strategy, how can they possibly be expected to implement it? Strategy implementation requires its own effort and plan of action. The following three steps will help you start this process:

#5 in How do we create a High Performance Culture?

Ask for Help

I mentioned in #4 about avoiding blame. This not the same as not accepting responsibility when something does not turn out as expected and certainly not an excuse for doing nothing!

Responsibility and accountability are the flip side of autonomy and ownership. You cannot have one without the other. The task, therefore, is in accepting responsibility and being accountable, that when things do not follow the plan you step up to the mark and start looking for solutions. More importantly, if you are stuck, ask for help!

Why You Should Start Small With a New KPI Methodology

One mistake organisations make in performance measurement is to not have a real methodology. They treat measuring performance as an ad hoc activity or event. But when you do adopt a performance measurement methodology, another mistake is to do too much too soon. Starting small is important for a few reasons...

Rushing into a full implementation of your new performance measurement methodology, without a strong enough performance culture (and how many of us can claim to have that?), is a recipe for failure:

You'll overwhelm people and burn them out.

You'll make mistakes without noticing, and leave them uncorrected.

You'll feel out of your depth and lack confidence when you need it most.

You'll fail to get a measurable return on investment for your measurement approach.

Starting small, just like a pilot test, has some very worthwhile advantages:

Why driving change is hard work

How many times do you hear or read the term “driving change”? It’s a very assertive message, the intent to make it happen no matter what, but I wonder if the concept of driving is the root cause of many initiatives failing to deliver on expectations.

Driving, it seems, implies forcing others to go in a direction they don’t want to; little wonder then that, as soon as the driving force is removed, they revert back to what they feel happiest with. Driving change, then, is hard work and demands constant ongoing effort from the driver.

Are These 8 Excuses Holding You Back From Great KPIs?

If your KPIs suck, even though you’ve long wished for better ones, it’s likely that something is holding you back. That ‘something’ could be a very good reason, or it could simply be an excuse that you’re mistaking for a reason…

There are good reasons for not prioritising the development of a good performance measurement system.

One reason is if your organisation has a blame culture, where there’s very little trust and teamwork, and where measures are used to punish and reward, rather than to learn and improve. There’s no point having better measures if they’re just going to be ‘gamed’ and used to hit people over the head.

Another reason is that your organisation has no strategy at all, and people simply have no idea what results matter or what the organisation is trying to achieve. There’s no point having measures if you don’t know which results matter and need improving.

The ABCDs of Trustworthy Leadership

The world is in desperate need for a new kind of leadership. The type of leadership we’ve seen the last several decades has produced record low levels of trust and engagement in the workforce, so clearly what we’ve been doing isn’t working. We need a leadership philosophy grounded in the knowledge and belief that the most successful leaders and organizations are those that place an emphasis on leading with trust.

We are what we repeatedly do. Excellence, then, is not an act, but a habit

Aristotle (384BC – 322BC) summed up perfectly the reason why so many improvement initiatives fail; it is because they are just that, initiatives.

I once joined a company where one senior manager repeatedly used the phrase “keep taking the aspirin”. When, after a short while, I asked what he meant he explained that the culture in the business was akin to having a thorn in your foot and, instead of removing the thorn, repeatedly taking aspirin to dull the pain. Some years later, in a different organisation, the Quality Manager complained “we never have time to do the job right, but we always have time to do the job twice”.

#3 in How do we create a High Performance Culture?

So we agree that KPIs are important and they need to be used correctly. They need to be owned, but how ?

How often does a boss tell (or maybe ask!) someone to do something? How often does a boss ask someone, ”What do you actually do?”

Defining KPIs is very much about understanding what people do to achieve their objectives, targets etc. as required by the strategy communicated from above. Once this is understood a practical metric for the KPI can be defined and a source of reliable data is identified or created. Do this for the small number of activities critical to a person job and you are on the way to success!

Leadership – to change or not to change, that is the question

Photo: GETTY IMAGES

So David Moyes has departed Manchester United - not an unexpected result given the clubs performance this season. I have to confess to being a lifelong supporter and so I am dismayed at the change in fortunes in only one season, therefore Moyes leaving is no surprise and with a reported £5m payoff every cloud has a silver lining! Failure can be rewarding after all. Who was it said, "Gentlemen, we need to fail more often."?

Of course, it raises some interesting points on the subject of leadership. A number of pundits have claimed one reason for his failure was he wanted the team to adapt to his style of leadership rather than the other way around. It seems that whenever a new “leader” arrives they seem to want to stamp their authority and character on the team/organisation/company. Same in politics, new governments want to change whatever the previous lot did irrespective of whether or not it is needed.

So what should a good leader do?

Do you belong to a High Performance Culture?

Do you think you are part of and belong to a High Performance Culture at work? In fact, what is a High Performance Culture?

A few hints:

1. You enjoy going to work each day!

2. You feel valued as a team member, but also as an individual

3. The company has a vision which is articulated in the strategy, understood from top to bottom of the organisation and reflected in the values of the company. If you were to stop someone in the corridor and ask them what the vision and values are they would be able to tell you. (Try it sometime!)

Rules for Assuring Poor Performance

Imagine I took over the management of a poorly performing organization and wanted to keep it that way. For example, I might not want it to grow so quickly that it would leave me less time to pursue my hobbies and golf. What steps would I take?

First, I would ensure that all of the managers and employees are totally ignorant of the executive team's strategy. That way no one will understand how the work they do each week or each month contributes to successfully achieving the strategy. Next, I would figure out ways to insure that managers and employees don't trust one another. I would discourage dissent and debate. It would be tricky to preserve some level of harmony by not allowing healthy conflict among managers that are already distrustful of each other, but I think I could do it.

I have recently heard about this new trend of “business analytics.” I will stop any employee trying to use software for analysis. My IT department should have some sort of software to detect it.

Next, I would avoid holding anyone accountable. That would be fairly easy because I would disallow reporting of performance measures. Anyone mentioning the phrase “the balanced scorecard” would be summarily fired. I would try to disallow setting of targets, but some managers have a nasty habit of liking them. I think those managers believe that if they could make it appear that they are better performers than others, that I would then reward them with a “pay for performance” bonus system. If I allow people to be motivated this way, performance might improve. I'm not going to fall for that trick.

I would freeze our managerial accounting system to remain in its archaic state. It was probably designed in the 1950s, but our external financial auditors would always be giving us an OK grade. I'd allow managers to hire more support overhead to manage the resulting complexity, but I'd preserve the primitive overhead cost allocations to processes, products and customers using those distorting and misleading broad averages, like product sales volume or number of units produced. Using activity-based costing (ABC) would be forbidden. Most employees would already know that these cost allocations cause big cost errors, but I would want to keep them guessing about which products and customers make or lose money and what it actually costs to perform our key business processes. I don't think my financial controller will correct this, but I need to keep a watchful eye because my accountants are getting much smarter about how to improve operations and serve as strategic advisors to me.

We would need to be careful about how much information we collect and report about our customers. Obviously we'd report their sales volume data, but I would not segment our customers into any groupings. I'd keep sales reporting at a lump sum level. I don't want anyone asking questions like, “Which types of customers should we retain, grow, acquire or win back from competitors?” To keep our company from tanking, I would encourage sales growth by putting big signs in the marketing department saying, “More sales at any cost!” I'd prevent the CFO from any thoughts of measuring customer profitability. But that would be easy because our arcane cost accounting system wouldn't be capable of calculating that information. The marketing people typically spend their budget with a “spray and pray” approach, anyway. Targeting specific types of customers and getting a high-yield payback from our marketing spend would be outside their level of thinking. I'd maintain our advertising spending as the “black hole” that no one understands.

I would, of course, implement an enterprise resource planning (ERP) system. I wouldn't want to be at a cocktail party with other executives and admit I don't have one. That would be too embarrassing, like a teenager without an iPod. Luckily, ERP systems alone won't improve performance; they produce mountains of transactional data for daily control but not meaningful information from which anyone could make wise judgments or good decisions.

Our budgeting system would be another way to assure our poor performance. Since the budget numbers are obsolete a couple of months after we begin the fiscal year, assembling the budget for six months during the prior year would provide a great distraction and prevent anyone from working on more important things. Plus I love sending the budget back down a few times to be redone to lower the budgeted costs. Everyone moans – more assurance for poor performance.

We'd squeeze our suppliers. We could talk about partnering and collaboration, but any attempt to actually do so would be squashed immediately. Never trust a supplier. If you drive one out of business, you can always find another.

I don't think I could stop employees from using spreadsheets. They are contagious. But since every department would have their own spreadsheets, it would be like a Tower of Babel. Employees would waste a lot of time trying to make their numbers match. Those employees with secret spreadsheets might want to use them for forecasting and planning. I'd put a stop to that by calling it gambling and promote our company as being conservative. Gambling is for fools, so I'd set a policy forbidding risk taking.

I know that operating a poorly performing business is an extremely difficult job, but I think I'd be up to the task. Suppressing the efforts of all those employees and managers who want to think, analyze, contribute and make the business successful requires constant vigilance. The business world is full of subversive ideas that could hamstring my efforts to keep the business floundering aimlessly.

I am particularly concerned about this new concept called “enterprise performance management.” Whatever it is, I will stop it from happening. I believe that with hard work and dedication, I could keep any company from reaching its profit-making potential.

Gary Cokins, CPIM (gcokins@garycokins.com; phone 919 720 2718) http://www.garycokins.com

Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and book author in business analytics and enterprise performance management systems. He is the founder of Analytics-Based Performance Management LLC, an advisory firm located www.garycokins.com . He began his career in industry with a Fortune 100 company in CFO and operations roles. He then worked 15 years in consulting with Deloitte, KPMG, EDS, and SAS.

The Higher You Are, the Less You Know

I recently participated in a provocative discussion thread of a website where the question was asked, “Why do executives fail to act on proposed ideas that could save a company substantial amounts of money?” I was expecting a debate between defenders of an executive team’s prudence and attackers of an executive team’s complacency and competence. To my surprise, all of the comments were of the latter type. Maybe every one of them took angry pills the day they posted their opinion.

I am unsure of the correct answer. I do want to give executives the benefit of the doubt. I sense that an explanation for less risk taking by executives involves the emergence of business analytics and Big Data. It can be explained with a pyramid depicting how power and influence of individuals affects types of decisions.

A power and influence pyramid

The savvy executives are realizing they must now delegate and distribute decision rights deeper down into their organization to empowered managers and employees. This is because of the exponentially growing mountain of data, both structured (numbers) and unstructured (text) including social media, and a speed-up and volatile world. Executives can no longer hoard decisions at the C-suite level. In my pyramid the executives are at the top just like in an organization chart. Their decision types are strategic ones. As examples, what is our organization’s mission? What products and services should we offer to maximize value to our constituents? What altered strategic direction should we navigate our organization toward?

In contrast, at the lower levels of the pyramid are operational types of decisions that should be made by employees who ideally have had the strategy communicated to them by the executives (via a strategy map, scorecard, and dashboards).

With expanding Big Data, the base of this pyramid is widening, and executives are realizing it is futile for them to be able to explore, investigate, and comprehend this massive treasure trove of data. This is why the role of analysts (think “data scientist”) is emerging as being mission-critical. Executives cannot do it all. They must now delegate decision making, and provide analytical tools and capabilities for decisioning to their workforce.

Performance improvement levers

An impediment on improvement is an organization’s approvals process. Too many managers may be involved. Performance improvement actions are the consequence of thousands of daily decisions made by employees. There are two powerful levers for performance improvement and more specifically the execution of the executive team’s formulated strategy: (1) as mentioned, clarifying decision rights, and (2) designing effective information flows.

1. Clarifying decision rights – As organizations grow in size, the approval process gets complex and foggy. Employees become unsure where one person’s accountability begins and another’s ends. Workarounds then subvert formal hierarchical reporting relationships. Clarifying who has what decision-making authority and empowering decentralized decisions lower into the organization brings mission-critical agility – as long as trust is given by the executives and second-guessing by supervisors is minimized. But with more decision rights must come more accountability with consequences. This is the domain of performance indicators against targets and motivational methods.

2. Designing effective information flows – Decisions are based on information. Too often information flows are blocked by organizational silos. Collaboration is important and enabled by cross-functional information flows. To complicate matters, logical and judicious decisions are constrained by the type and quality of information available to employees. Some organizations simply have inconsistent and poor-quality data. Even with a new transactional business system, such as an enterprise resource planning (ERP) or customer relationship management (CRM) system, organizations drown in oceans of data but starve for information in a form that business analytics can mine and that can be quickly interpreted in the context of a problem or needed decision.

Business intelligence does equate to an intelligent business

Executives may be brilliant strategists. But strategists need foot soldiers to carry out tasks. The higher the executives are, the less they can know about what is happening. Yes, there can be summarized reporting and executive scorecards and dashboards. But monitoring the dials is not the same thing as moving the dials.

The era of widespread use of analytics is in its earliest stage. If competency by the work force with analytics is not now a top five priority with an organization, just wait a couple of years. It will be. It is a competitive edge. 

Gary Cokins, CPIM (gcokins@garycokins.com; phone 919 720 2718) http://www.garycokins.com

Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and book author in business analytics and enterprise performance management systems. He is the founder of Analytics-Based Performance Management LLC, an advisory firm located www.garycokins.com . He began his career in industry with a Fortune 100 company in CFO and operations roles. He then worked 15 years in consulting with Deloitte, KPMG, EDS, and SAS.

Historians versus Futurists – Who is More Valuable?

Futurists enjoy taking out their crystal ball and projecting future innovations, but they are typically wrong. For example, George Orwell’s book, “1984,” which was published in 1949, did not come close with its projections. And in the 1960s, I recall a Walt Disney television show describing automobiles that required no driver and were guided by a magnet-like strip imbedded in the street’s or highway’s roadbed. Nice try.

In contrast, historians research the past to determine what lessons might be learned and applied today. For example, historians examine the judgments, policies and actions of past U.S. Presidents and international government leaders to assess what actions may best serve citizens today. The recent movie “Lincoln” is an example.

But which group -- futurists or historians – provides more useful information? Futurists make us think by being provocative. Historians allow us to reflect on what worked or did not work in the past.

This question is relevant for today’s organizations because many enterprises fail to successfully execute their executive team’s plans and allocate an appropriate mix and level of resources to complete those plans. This involves strategy and budgeting – two disciplines that are widely criticized today. 

Historical Lessons Applicable to Strategy Execution and Budgets

In the book, “The Art of Action,” author Stephen Bungay reflects on lessons from war and military campaigns that can be applied to leadership skills and planning. He specifically addresses how an organization can implement and achieve the formulated strategy and plans of its executive team.

Bungay’s premise is that the leaders of almost all organizations can define reasonably good strategies. Where executives often fall short is in leading their organization to execute their strategy. Bungay describes this problem as a gap and advises how to close the gaps.

His assertion is that, similar to military campaigns in war, when a strategy encounters the real world, three types of gaps appear. He describes gaps in terms of expected results and reality, particularly related to outcomes, actions and plans. Gaps result from the complex and unpredictable environments that all organizations deal with and are made more severe by globalization. The three gaps are:

1. The Knowledge Gap - The difference between what we would like to know and what we actually know.

2. The Alignment Gap - The difference between what we want people to do and what they actually do.

3. The Effects Gap - The difference between what we expect our actions to achieve and what they actually achieve.

Based on knowledge as a historian of military practices, Bungay observes that a key to successful strategy execution is delegating more decision-making authority to managers and employee teams. 

Empowering Managers and Employee Teams

Bungay recounts lessons from the 19th century Prussian army. Following an unexpected military defeat, the Prussian military reformed its tactics. Lower-level officers were given more flexible command to make decisions. What mattered was that they fully understood the battle mission. Allowing the officer corps to make more decisions resolved a problem: The higher-ranked military leaders were from farther from the battlefield and less aware of the current situations. Officers could pursue local actions as they saw fit.

The Prussian army solution was the institutionalization of military genius with centralized and elite generals, and increased accountability of the field officers with rewards based on their performance and outcomes. This reform was successful, and the army conquered other countries.

In terms of today’s managerial methods, the parallels of the Prussian army reforms are the application of balanced scorecard methodology and the adoption of “Beyond Budgeting” concepts, first written about by Robin Fraser and Jeremy Hope.

The balanced scorecard’s primary feature is the development of a strategy map that visually displays a dozen or more cause and effect-linked strategic objectives. Using four sequenced components (referred to as “perspectives”), the linkages move from employee learning, growth and innovation to process improvement initiatives to customer loyalty objectives, which all impact the outcome of financial objectives. The KPIs reported in the balanced scorecard are derived from the strategy map. The KPIs monitor the progress toward accomplishing the strategic objectives and, with each KPI assigned targets, the foundation for accountability is established and alignment with the mission and strategy is achieved.

The “Beyond Budgeting” concept views the annual budget as a fiscal exercise done by accountants that is disconnected from the executive team’s strategy and is usually insensitive to forecasted volume and product/customer mix. It acknowledges that budgeting annual line-item expense limits are more like shackling handcuffs to managers; they may need to justifiably spend more than was planned for and approved many months ago in order to take advantage of newly emerged opportunities.

This method advocates abandoning the annual budget, which quickly becomes obsolete. It proposes removing the budget’s controls by giving managers the freedom of decision rights, including hiring and spending decisions without requiring approval from superiors. It invokes controls by monitoring non-financial KPIs against the targets defined by the executives in the balanced scorecard’s strategy map. Managers do not escape accountability, and there are consequences. The time frame is not annual, but rather dynamic. Historians versus Futurists

The message here is not that organizations should not be researching emerging and imminent new technologies and methods, like analytics and big data. The message is that granting decision rights to managers – but holding them accountable with consequences – is effective at closing the three gaps. And this is a lesson learned from historians.

Gary Cokins, CPIM (gcokins@garycokins.com; phone 919 720 2718) http://www.garycokins.com

Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and book author in business analytics and enterprise performance management systems. He is the founder of Analytics-Based Performance Management LLC, an advisory firm located www.garycokins.com . He began his career in industry with a Fortune 100 company in CFO and operations roles. He then worked 15 years in consulting with Deloitte, KPMG, EDS, and SAS.

Ministers - 12 or 40?

This is a little story we used to tell when, in the early days of quality learning, we began to understand what to lead means.

The question was asked: which is the ideal number of team members we must have in our organization?

Which number would you say, without thinking much about it? Answers used to vary from 3 up to 20.

The correct answer, however, was:

IT DEPENDS!

If the team is well trained, completely aware of what they have to do, and the leader only does that which he alone can do... a conductor commands up to 180 musicians in a philharmonic orchestra!

Each of the musicians is thoroughly trained, has a sheet music that tells him in detail what has to be done... and the conductor only sets the rhythm!

Imagine if he tried to jump from one musician to the next, correcting the violinist's strings tension, replacing the drummer at some crucial point, or singing at such a high note as the soprano was not being able to reach...

In other words: the number varies, depending on the clarity of the instructions given, people’s training and... a leader who doesn't get in the way!

You can apply this reasoning to your company...

Written by: Claus Süffert

Using KPI’s to Coach for Performance Improvement

Several years ago, I led a culture change in a manufacturing organisation. We removed a top down, high dominance structure and replaced it with customer focussed cells. During the reorganisation, we moved relatively inexperienced people into new leadership roles. Why did we do this? Because the company had realised that a top down, “tell them what to do” culture wouldn’t provide the speed of change needed to complete successfully. They needed empowered, autonomous teams with the potential to deliver results. 

So how do you manage empowered, autonomous teams, given that they must be autonomous and not managed? 

 How do you ensure that they understand the company goals and all their actions are geared to achieving them? The answer is to use the overall company goals and objectives to define team goals and objectives. 

A system of performance measurement (KPI’s) and regular review meetings can then be used to deliver the goals, but allow the leaders autonomy with their teams. 

If managers hold regular KPI review meetings, they clearly define what they expect from their teams and action plans can be developed to meet the company goals. Thus, the company has systems to manage the delivery of company goals. 

The impact on individual employees is that their goals and objectives are very clearly defined. They and their peers can clearly see who is delivering against expectations and who is not. 

For managers, performance coaching then becomes more objective. High performers are easily distinguished and can be rewarded accordingly and poor performers can be identified and then managed objectively, with performance reviews focussing on results and how to achieve them. This avoids personal criticism, which makes the review easier for the employee. They become more receptive and less threatened by the discussion. Focussing on achieving objectives and the steps they must take enables the poorer performers to achieve more than they would without this focussed coaching. If the poor performer is repeatedly unable to meet goals, then the management of their exit from the organisation is easier for both the manager and the employee. 

Using KPI’s with regular, action based reviews, gives teams and their leaders a clear view of what is expected from them and gives the responsibility and autonomy for the delivery of results to the team. With clear direction, the teams are then empowered to deliver high performance against company goals.

Written by Jane Burns - Manufacturing Coach

Sugestion: a ballot box that will work!

Every company that claims to be innovative must surely have an excellent suggestion system to receive the dozens of ideas its employees come up with everyday when dealing with the company's real problems.

Is it worth having a formal system, or is it enough for those who rule to be with their ears open to the suggestions by those who obey?

The almost-impossible-perfection would be to set a system that would work without any type of control, only based on people's interests/motivation.

I can't imagine how to keep such a think functional and operational, especially in companies with many employees. It would be a lot easier to organize a practical system with non-sophisticated controls, which motivates employees, not too toilsome to employers, and which delivers results!

The natural tendency of every person who enters an organization is to call the attention of colleagues and bosses to something the person considers to be wrong or could be improved. However, the tendency is that their idea is unfortunately almost never considered, it simply dies in one of the steps it goes through from the moment it comes to be to when it is implemented. And its creator, after some time, realizes it's not worth bothering others with suggestions - and stops.

At this moment the innovative company takes a step backwards...

The first and vital attribute of a suggestion system is to keep people motivated to contribute and challenge things as they are, considering alternatives; a company shouldn't waste this vast source of creativity.

Before thinking of shows, colorful pin boards, ballot boxes scattered all over the company and prizes in cash for the best suggestions... try to make one ballot box available and spread the news that the ideas put there are all considered with seriousness and quickly dealt with.

Suggestions will appear consistent, over time, and you'll say the ballot box works!

It is a small miracle, which appears naturally via the use of a precious control item, connected to the intended result - and effective for its management.

Don't worry about measuring the number of suggestions per month.

Measure only those many suggestions which are:

- either with a longer than 15 days response delay from the moment it was created; (responses in this situations are: approved and scheduled to be carried out; still under assessment, but with a scheduled date for an answer; not approved and justified as such;)

- or with a longer than 15 days response delay after one of the promised dates.

Keeping this indicator under control will make the number of suggestions per month be a mere natural and stable consequence of this measure.

Action Plan, KPI Management, Strategy Execution